Why agency negotiations are never as straightforward as you think

This post is by Darren Woolley, Founder of TrinityP3. With his background as analytical scientist and creative problem solver, Darren brings unique insights and learnings to the marketing process. He is considered a global thought leader on agency remuneration, search and selection and relationship optimisation.

Negotiations can be difficult things, especially when either party is speaking a different language. And believe it or not, marketers and their agencies do often speak a different language, which is why these negotiations can become protracted and frustrating.

While we always recommend that advertisers or their procurement team should lead the negotiations, we offer to support these negotiations, providing our industry knowledge and more importantly our Ad Cost Checker database and our TrinityP3 Scope Calculator, which we have used to assess the agency remuneration proposal (if it is a pitch or new contract negotiation) or the current remuneration (if it is a contract review).

An interesting observation is that many marketers and advertisers mistakenly believe that the negotiation will be straight-forward and that they do not need this support. Although in a few cases this is true increasingly agency remuneration and the associated negotiation process have become a lot more complex.

Here are a few of examples of how the process can go hopelessly wrong.

1. The goal posts keep shifting

At the end of a pitch process we had used the client’s scope of work to prepare the agency templates for the short-listed agencies to complete. We then compared the agency proposals to the benchmark resource levels, the resource mix and cost.

The final report provided not only the analysis but also recommendations on what needed to be negotiated with any one of the three final agencies, depending on which one the client ended up choosing. The mistake we made is possibly making the next stage look too straight-forward as the client, saying they wanted to save money, decided to take on the negotiations themselves.

Three months later we heard the negotiations kept changing as the client team kept wanting to add additional work into the scope of work and yet were not offering any additional remuneration. Each time the scope increased, so justifiably did the agency fee. It seems that you cannot get something for nothing, except a whole lot of wasted time.

2. The data keeps changing

We were contacted by an advertiser because they could not resolve the latest round of agency negotiations. They wondered if we could help. Always wanting to provide a helping hand we asked for all of the agency proposals and negotiation notes to date. It was clear from the pile of PowerPoint documents (the preferred agency format for remuneration proposals) that this had become a protracted process.

We also asked for a copy of the current agency contracts. There was something missing from all of the documentation, and that was an agreed set of remuneration fundamentals. This includes an agreed overhead and profit multiple and billable hours per annum. Pretty much all of the variables you will find in the TrinityP3 Resource Rate Calculator business phone app.

It was clear that without these agreed for both the retainer and the production rate card the costs would be a moving feast. In fact it appeared that the agency and client team were using different fundamentals, which goes part of the way to why they could not reach agreement.

3. The process gets derailed

The fastest way to derail a negotiation is to change the players. The most obvious way is to change the marketing lead on the client side as this will often lead to a change in agency as the new broom sweeps out the old agencies. But possibly the most interesting derailment was when the agency Finance Director left the agency for a competitor.

On his announcement the agency marched the departing Finance Director off the premises that day. The client was in the middle of their annual negotiations and the agency CEO had left all of the work to his finance counterpart. It also appears that the Finance Director had planned ahead and no-one at the agency could find the documentation.

But it could simply have been a stalling manoeuvre as the agency was facing a major downward adjustment in their fee due to a major cut in the marketing budget and a corresponding cut in the scope of work. It took almost 12 weeks for the new Finance Director to come on board and get the negotiation completed.

Getting the result you need when you need it

When it comes to negotiations, we believe excellent value for money is delivering the desired outcome quickly and completely. This means investing time up front to get the negotiation strategy right including a going in point, negotiation position and a walk-away point and have this agreed by all stakeholders.

Once this is complete it is simply a matter of engaging the agency in the process. From this point to completion we find the negotiation typically takes less than a week. The preparation can take several weeks, but the actual negotiation is usually complete in this relatively short time-frame.

Yes, we follow Abraham Lincoln’s advice and make sure the axe is sharp before we start cutting.

Transcript:

Darren Marketer:

We need to get the costs down.

Darren Agency:

So how are you planning to do that?

Darren Marketer:

Well I thought you might do what you are currently doing for less?

Darren Agency:

Oh, I see, so what you want us to be less strategic? Or maybe less creative? Or maybe just less friendly?

Darren Marketer:

Now don’t be like that.

Darren Agency:

Sorry, yes, of course, we love working for you so much we would do it for nothing.

Darren Marketer:

Really?

Darren Agency:

No.

Darren Marketer:

It is just half an FTE less.

Darren Agency:

So what, a headless account lead or should I just cut the arms off all of the account team?

Darren Marketer:

Now you are just being difficult.

Darren Agency:

You’re the one butchering the agency team.

Darren Marketer:

Okay, well then maybe just lower your overhead then?

Darren Agency:

There you go with the decapitations again.

Darren Marketer:

What? I’m just under pressure to cut costs.

Darren Agency:

All right, so we can cut 0.3 from account management, and 0.125 from creative, but I need to add 0.2 to strategy and digital is up 3.5

Darren Marketer:

What? That doesn’t add up?

Darren Agency:

Hang on. I have cut 10% off the overhead

Darren Marketer:

Oh, good.

Darren Agency:

But we need to consider a production commission.

Darren Marketer:

Okay. Let me think on that and I’ll get back to you.

Darren Agency:

But we are already six months into this year.

Darren Marketer:

I thought we were negotiating next year?

Darren Agency:

No, we never finished last year’s negotiation.

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About Darren Woolley

Darren is considered a thought leader on all aspects of marketing management. A Problem Solver, Negotiator, Founder & Global CEO of TrinityP3 - Marketing Management Consultants, founding member of the Marketing FIRST Forum and Author. He is also a Past-Chair of the Australian Marketing Institute, Ex-Medical Scientist and Ex-Creative Director. And in his spare time he sleeps. Darren's Bio Here Email: darren@trinityp3.com

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